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Gold vs. Silver

“The desire for gold is the most universal and deeply rooted commercial instinct of the human race.”

Among precious metals, gold stands alone.

In recent years, some investors have touted silver as an alternative to investing in gold. Between February and September of 2010, the price of silver increased by 30 percent compared with a 17 percent increase in the price of gold.

However, investors should note that the price of silver is volatile. Each sharp increase is countered by a steep decline. In September of 2011, the price of an ounce of silver dropped nearly 33 percent, from just under $42 USD to $28 USD.

Purchasing silver coins (especially in smaller denominations) also carries higher markup fees than purchasing gold coins. The logic behind this is simple: because silver coins cost so much less than gold coins, the percentage markup needs to be higher for the dealer to turn a profit.

Industrial Demand for Silver

Some proponents of investing in silver believe that it has added utility over gold because of its industrial applications in everything from electronics to photography. They argue that silver is not just a store of value; it has a practical application (and therefore a demand) that will never wane.

But silver’s utility as a commodity detracts from its status as a precious metal. Silver should first and foremost be considered a store of value. Casting it in any other light diminishes from this quality.

If the price of silver rises too high, industrial demand will wane. Silver has appreciated more than 800 percent over the last decade. Any further increase and industries could resort to using alternative materials, causing the price of silver to crash.

Gold is in the midst of an 11-year bull market, causing wary investors to predict that the price of gold will collapse as the market corrects. They are wrong. Skeptics have been waiting years for the so-called “gold bubble” to burst. It never has.

Because of the universal sway gold has over people, it will always be in demand. The higher gold prices rise, the more investors seem to covet it. Gold has always been the preeminent store of value, even when compared to other precious metals.

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Rate of Gold is a proprietary creation of GONTHIER GROUP SA, one of the leading insurance brokerages in Switzerland. All inquiries directed to Rate of Gold are handled by GONTHIER GROUP SA.
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